Nike (NKE +0.72%) impressed investors this week with its earnings report for its second quarter of fiscal 2019. The sports apparel retailer reported double-digit revenue growth and improved profitability, driven by strength across all of its geographies and strong e-commerce sales. Highlighting how surprising the results were, shares surged 7% on Friday -- a particularly impressive gain considering the S&P 500 fell more than 2% on the same day.
So what exactly was it that made investors so much more confident in Nike after the company's second-quarter update? Here are four ways Nike is crushing it.
Nike Air Jordan XXXIII. Image source: Nike.
1. Accelerating growth
Nike's strong second-quarter results are best demonstrated in the company's significant acceleration in its year-over-year revenue growth rate for the period. Fiscal second-quarter revenue increased 14% on a currency-neutral basis. This compares with 9% currency-neutral growth in Q1.
This growth was well ahead of management's guidance for the period. In the company's first-quarter earnings call, Nike guided for second-quarter revenue to increase about 9% year over year on a currency-neutral basis.
Nike's strong second-quarter growth was driven by accelerated growth across all of the company's geographies and momentum in Nike Direct, or the company's Nike-owned retail stores and its digital commerce. Currency-neutral revenue in North America, EMEA (Europe, Middle East, and Africa), Greater China, and Asia Pacific and Latin America segments increased 7%, 11%, 26%, and 15% year over year, respectively, in Q2.
2. Digital momentum
While Nike Direct helped drive growth for the company across all of its geographies, it was the digital commerce portion of its Nike Direct channel that led the way, management said in the company's second-quarter earnings release.
Nike's digital sales in its second quarter were up 41% year over year on a currency-neutral basis. The channel saw "continued momentum in both Sportswear and Performance categories, including a return to growth in the Jordan business," said Nike CEO Mark Parker in the company's second-quarter earnings call.
3. Improving margins
Importantly, Nike's gross margin increased 80 basis points year over year to 43.8% in Q2. This uptick was primarily driven by higher average selling prices and margin improvement in the company's Nike Direct business, management said.
Management expects this gross margin momentum to continue, guiding for its gross margin in the full year of fiscal 2019 to be up about 70 basis points year over year.
4. A strong outlook
Given the strength seen across Nike's business in Q2, the company now has a more optimistic outlook for full-year revenue growth. Previously, management said it expected its full-year fiscal 2019 currency-neutral year-over-year revenue growth to be in the high single digits, albeit likely at the lower end of this range. Now management is guiding currency-neutral revenue growth "to be in the high single-digit range, potentially approaching low double digits."
